Apple | Google | Spotify | Stitcher | Soundcloud | YouTube
In this episode, you’ll discover the real truth about trading most gurus don’t want you to know.
So listen to it now…
How to be a Profitable Trader Within the Next 180 Days (Even if You’re New to Trading)
How to Trade Small Account in 2020 | Forex Trading
The Best Trading Books of All Time
Hey, hey, what’s up my friend?
In today’s episode, you will discover the truth about trading most gurus don’t want you to know because it’s bad for business.
Let me share with you a few truths about trading that you might not be aware of.
1. Trading is not a get-rich-quick scheme
Trading is a get-rich-slow scheme. Why do I say that?
One of the smartest and richest people in this world, Warren Buffett said, “My wealth has come from a combination of living in America, some lucky genes and compound interest.” What’s he trying to say?
He’s lucky to be born in America in this day and age, but compound interest plays a huge part to get him where he is now. Because his returns have compounded over the last 50 years, 20% a year. That’s where he made his billions by compounding.
And Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” One of the smartest guy in the world also talked about compound interest.
The thing about compound interest is it takes time. You can compound your returns over weeks, over months, but it will be nothing significant. But when you compound it over years, over decades, that is where the magic happens.
That’s the fundamental truth about trading. It’s a get-rich-slow scheme. If you wanna make serious money in trading, it’s a get-rich-slow scheme. If you’re looking at this as a get rich quick scheme, then guess what? You are the scheme. That’s the first truth.
2. In trading, you need money to make money
You can’t expect to make serious money with a $1,000 account or a $5,000 account. Yes, you can double it, triple it, but there’s a huge risk that you’re gonna lose everything and more.
So you better learn about compound interest. When you compound your account, that’s where your money gets larger and larger. Let’s say you do 20% a year on a $1,000 account, that’s like $200.
But if you have a million-dollar account that 20% is now worth 200,000. And when you keep compounding your returns, your trading account gets larger and larger. This way, your returns get larger and larger.
This is why I say you need money to make money in trading. There are no shortcuts, there’s no special leverage, 1:500, 1:1000, where you can make a huge amount of money quickly. Yes, you can, but you’ll have a high risk of losing it all as well.
3. You must work on your game consistently
Even if you have made it as a profitable trader, you’re still working on your game consistently. I can guarantee you that the best traders out there who are consistently profitable, are not satisfied with their status quo. They won’t just remain stagnant.
They are always constantly researching and refining their edge, learning new trading strategies that they can adopt to complement their existing strategies. They’re always constantly trying to improve their mental strength to create a larger account.
There’s always work to do even though you’re already a consistently profitable trader. You wouldn’t just be, “Oh let’s go to the beach and sip some pina colada, life is good.”
No, that’s not how professional traders do it. If you’re serious in this business, the learning continues, the research continues. Yes, you’ll find time to relax or to enjoy. But you’re still in this trading business where your heart and soul is still 100% in it.
There is no, “Oh, I’ve made it. Let me enjoy myself and let trading be a passive income.” There’s nothing passive about trading. It’s very active, not physically where you’re lifting weights and stuff like that. But in terms of the mindset, it’s very active.
4. Nothing is guaranteed in trading
Be it stock trading, forex trading, options trading, futures trading, there’s no guarantee in trading.
No one can guarantee that you’ll be a profitable trader after one year. No one can guarantee after taking XYZ course you can make money within the next six months. No one absolutely, no one, no matter how good the track record is.
Let me share with you an example back in my prop trade days. I would say this is about the 2007, 2008 era. Most of the prop traders back then in my industry were trading the Nikkei futures.
The Nikkei futures is traded across a few different exchanges, Singapore exchange, the Osaka exchange and even on the CME.
The algo isn’t as fast back then. Humans can pretty much arbitrage the Nikkei contracts so you can buy low, sell high repeatedly to make six figures, seven figures a year. And many of them think that this would go on forever, so they spent money like drinking water.
They’ll just go out to a bar for one night and come out with a five-figure bill and continue trading the next day. Our trading arcade had a slew of bars all over there.
And here’s the thing, after one or two years, this edge slowly got eroded by trading algos, the high-frequency traders. This means the inefficiencies in the Nikkei market started to deteriorate.
Today if you asked me, those traders who used to make six figures, seven figures, 99% of them are no longer around. Some of them are driving a cab, some of them have either traded a different methodology or moved on altogether.
There is no guarantee in trading, no matter how much money you’ve made, how confident you think you are. There’s no guarantee. And that’s the truth about it.
You have to constantly work at your game to adapt to the times, improve your trading, learn new trading methodologies, strategies, and techniques. This way, when one strategy stopped working for a period of time, you have something else to complement your portfolio.
This way, you don’t just rely on one strategy, but you have multiple strategies that you can trade at any one time. And that improves your equity curve. It will smoothen out over the long run.
How to become a profitable trader quickly
How do you quickly go from breakeven or a losing trader to becoming a profitable trader? Here’s the truth, there are no shortcuts. But there are a few things that you can do.
#1: Embrace compounding
This is something that many retail traders just don’t believe it. They just want it fast. They want it by this weekend, this month, over the next three months, they want results just like that.
But guess what, if you want fast results, you’ll probably get no results. Embrace compounding, as some of the smartest and richest people in the world had shared. They told you that the secret is compound interest. So embrace it.
If you want something fast, or want instant gratification then trading is definitely the wrong endeavour for you. And compounding doesn’t mean just in terms of money. It could be compounding in terms of your fitness.
It could be compounding in terms of gaining new knowledge. Imagine if you just gained 1% of new knowledge every day in a year. How much would you have learned?
If you just do 10 push ups a day, then at the end of the year how many push ups would you have done? How much different would your body be?
Compounding is not just about money. It’s about everything around you, your work attitude, your mindset, your fitness, everything.
#2: Add funds regularly to your trading account
The more money you trade, the more money you can make. If you have a full-time job, you have some savings and you’re confident of your trading ability, add funds to your trading account over time, maybe once every year, or twice a year whenever you deem fit.
If you add funds to your account regularly over time, you can trade more money and make more money.
#3: Don’t reinvent the wheel
Don’t reinvent the wheel, especially when you’re new to trading, you don’t have an edge yet. Follow what’s been proven from practitioners who have done academic researches. Like for example, stock trading momentum is a phenomenon that works in the stock markets.
Why do you want to fight against it? Just follow it and trade with momentum. And trend following is proven to work by riding trends across different markets, be it forex, futures, etc. So learn them. Don’t reinvent the wheel.
Once you have consistent profitability, once you have reached competency, then yes, you can start tweaking and reinventing the wheel. But when you just get started, take something that’s already proven to work and get to that stage, make it work for yourself.
From then on, then you can tweak and improve on things. But don’t try to reinvent the wheel from the start. It will only hamper your learning curve. You’ll only take longer to get the results that you want.
With that said, I hope you got value out of this episode. I wish you good luck and good trading. I’ll talk to you soon.